For many people, purchasing a home is one of the biggest financial and personal decisions that they’ll ever make. Buying a home is a significant undertaking, with lots of moving parts to consider — from the day you start envisioning your next home, to well after you walk away from the closing table with keys in hand. Buying a home can be particularly daunting for first-time buyers, including those transitioning from renting to owning.
Making the decision to leap from renting to owning a home is a personal decision. Deciding on homeownership will ultimately come down to your goals, your preferences, and your unique financial circumstances. Maybe you’ve decided it’s time to stop paying your landlord’s mortgage, and start investing in your own future. Perhaps you’re ready to put down roots in a beloved community after years of moving from place to place. Maybe you need a home with space for your growing family. .
Whatever your reasons, transitioning from renting to owning is a big step — and it’s important to know what to expect. Let’s explore some of the ins and outs of moving from renting to owning a home in Chicagoland:
Choosing the Right Real Estate Professional
Here in Chicagoland, the real estate market is more complicated and competitive than ever. As you get started on your homebuying journey, one of the most important decisions you’ll make is choosing a real estate professional.
At Baird & Warner, our agents are hyperlocal experts who are ready to be your trusted guide to all things real estate. When you buy with a Baird & Warner agent, you’ll have experience, knowledge, and innovation on your side. Our highly trained and highly skilled real estate professionals will do whatever they can to turn an intricate, complex process into one that is smarter and more seamless from beginning to end.
From getting your finances in order, to researching local neighborhoods, to leading negotiations and coordinating with other professionals to seal the deal on your new home, your Baird & Warner agent is here to make real estate easier at every step of the way.
Navigating New Costs
One of the most important aspects of buying a home is considering the financial side of things. This is particularly true if you are transitioning from renting to buying for the first time.
For one thing, the upfront costs of owning a home are often more substantial than they are for renting one. In order to purchase a home, you will need to have a downpayment, which typically falls between 5-20 percent of a home’s purchase price, depending on the specifics of your circumstances. There are also closing costs associated with buying a home, including attorney’s fees, insurance fees, and other miscellaneous costs. In contrast, renting generally includes fewer and lower fees upfront, such as first and last months’ rent, a one-time security deposit, and application fees.
As the owner of a home you may also be responsible for paying a number of expenses and fees that you might not have needed to consider as a renter. When you pay rent, you typically owe one set amount to your landlord each month; you may also be responsible for paying for certain monthly utilities, such as gas and electricity. As a renter, the amount you pay to your landlord either helps them pay their mortgage, or functions as pure profit.
As a homeowner, while the amount you pay may actually be less than renting each month, there are often more costs and fees to be aware of, which may function a little differently than you’re used to. As a homeowner, some of the routine costs to be conscious of include:
- Mortgage premiums and private mortgage insurance (PMI). Rather than paying rent each month, homeowners generally pay down their mortgage loans in monthly installments. Unlike rent, which is typically paid on the first to cover the month ahead, mortgage payments are made in arrears, meaning that you pay for the mortgage owed during the prior month. On top of monthly premiums, you may also be responsible for private mortgage insurance (PMI). PMI is generally a prerequisite for conventional loans, if the buyer cannot afford a 20 percent downpayment.
- HOA fees. HOA fees are regular fees owed to a condo or homeowners’ association, in order to fund upkeep of common areas and other community expenses. These may be paid on a monthly, quarterly, or yearly basis, depending on how the homeowners or condo association structures things.
- Property taxes. When you pay rent, property taxes may be factored into what you owe, but you are not responsible for paying them directly. As a homeowner, you will be responsible for paying property taxes, which can increase over time based on routine value assessments.
- Repairs, upkeep, and renovations. As a homeowner, you will be responsible for paying for the routine maintenance of your property, as well as major projects and any unexpected repairs that come up over time.
With that in mind, there are also numerous financial upsides that come with these regular costs. For instance, while rent can go up each year at your landlord’s discretion, when you pay a mortgage you lock into a specific rate, so that the amount you pay remains fixed. If you do have a mortgage with an adjustable rate, the amount that you pay can only increase gradually, and can usually only be adjusted after a set period of time.
Taking on New Responsibilities
As a renter, you may have been able to call on a management company or super to make repairs or quick fixes. There may have also been regular arrangements to take care of the landscaping, or make general updates to the property over time.
As a homeowner, you are responsible for making fixes or repairs whenever things go wrong. In addition to regular projects like mowing the lawn or fixing a backed-up toilet, this might also mean tackling significant — and sometimes costly — problems you might never have considered, possibly years or even decades down the line, from a malfunctioning septic tank to a roofing or foundation issue. In the short-term, purchasing a home will also often mean covering the expenses associated with moving, as well as decorating and furnishing your space.
Buying a home also often means making some lifestyle changes. Compared to renting, purchasing a home is often a sign that you are ready to be rooted in place and establish some stability. Renting generally offers more flexibility to relocate within a few months or a few years, usually with few to no strings attached.
On the positive side, when you own a home, it is truly yours — meaning that you get to make all of your own design choices, and create the home that reflects your personality and taste. No more going to the landlord for every minor change or project. Owning a home also offers a great opportunity to become part of a new community for the long-term, giving you the chance to get to know and enjoy local businesses, restaurants, schools, parks, and public transit options.
Enjoying New Benefits
In addition to the freedom and flexibility to create the home of your dreams, owning a home also offers practical benefits that you will not experience when renting, including the ability to build equity.
An owner’s equity is their interest in their home. You might think of home equity as the amount of a home’s value that you own, and which is not held by your mortgage lender or bank as an outstanding loan.Generally speaking, there are two primary ways for homeowners to develop equity:
- The homeowner pays down their loan and decreases the amount of debt they owe
- The value of the home appreciates with time
Building equity in your home can be an effective way to increase your wealth over time through “forced savings.” Over time, the equity you build becomes a meaningful financial asset, available to be used in many different ways. With the right strategy in place, you can use the equity in your home to purchase your next property when it’s time to move. In some cases, you can use home equity to help fund your retirement, or to pass on your wealth to your heirs. Home equity can also act as an asset for you to borrow against.
In addition to building equity, owning a home can also offer homeowners certain advantages come tax time. And while rent generally only increases, when you buy a home you generally lock into a fixed mortgage rate that will remain steady, regardless of what happens in the market. What’s more, you also have the option of restructuring or refinancing your loan over time by shortening the term of your loan, reducing your monthly payment, or eliminating private mortgage insurance. Making such an adjustment can add up to hundreds of dollars saved each month, which can amount to tens of thousands of dollars saved over the life of your loan.
When Home Means More, You Need a Team With More to Offer
Home is about so much more than just four walls. Buying or selling a home is a big deal, and with everything we experienced in 2020, our homes have never been more important. That’s why your local Baird & Warner agent is with you at every step of the way, from finding the perfect home to connecting you with local experts in mortgage and title. Whether it’s the beginning of a story or the end of a chapter, we’re here to help.